Member Sign In

You are being directed to ZacksTrade, a division of Zacks & Company and licensed broker-dealer. ZacksTrade and Zacks.com are separate but affiliated companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.

If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.

HSBC to Vend off Stake in Ping An

You have chosen to follow this author. You will receive an email notification when this author publishes a new article. Click submit to continue.

You are alredy following the Author

The Author could not be added at this time, please try again later. If problem persists, please contact Zacks Customer support.

Please Login

HSBC Holdings plc is considering the divesture of its stake in the Chinese insurance giant Ping An Insurance (Group) Company of China, Ltd for an estimated $9 billion (£5.7 billion). The sale is part of the company’s strategy to rationalize its operations and enhance profitability.

Background

In 2002, HSBC initially purchased a 10% stake in Ping An for an amount of $600 million. In the period 2002–2005, HSBC acquired another 5.6%, totaling 15.6% stake in Ping An for a sum of $1.7 billion. It is noteworthy that the 15.6% stake in the company reflects 40% of its Hong Kong-traded shares held by HSBC.

The potential sale seems to be a lucrative deal, given the massive profit it will generate upon sale. The proceeds are likely to strengthen the company’s balance sheet and are expected to be useful when the bank settles money-laundering charges.

However, the stake sale may not be that easy after all. The Chinese government has conventionally allowed only financial institutions to bid for stakes in the country’s major banks and insurers. This will narrow the list of possible buyers. Further, the initial public offering by another Chinese insurer, Pacific Insurance Company of China Group, could steal strategic buyers who may otherwise have opted to buy a stake in Ping An.

Similar Divestments

Earlier this year, HSBC vended off its general insurance businesses in Asia and Latin America for $914 million. The company is divesting its general insurance units in Hong Kong, Singapore, Argentina and Mexico to Australia's QBE Insurance Group Ltd. and France-based AXA Group in two separate deals.

HSBC is also looking to sell its 18% stake in Vietnamese insurer, Bao Viet Holdings. Moreover, it is assumed that eventually the company might sell its 19% stake in Bank of Communications, the fifth-largest bank of China (in terms of assets).

Now, HSBC is not the only company disposing its non-fundamental operations. In October, Netherlands-based ING Groep NV (ING - Snapshot Report) announced the sale of its Malaysian insurance business to Asian insurance giant, AIA Group Ltd, for nearly $1.7 billion (€1.3 billion).

Apart from this, ING announced the divestiture of its insurance business, pension and financial planning divisions in Hong Kong and Macau, as well as its life insurance operations in Thailand to Pacific Century Group for a total of $2.14 billion (€1.64 billion) in cash.

Our Take

The sluggish economic backdrop and the deepening Euro zone crisis have forced HSBC to rethink its business strategy. The company, under its new CEO, has resorted to aggressive restructuring since 2011. The restructuring involves streamlining its worldwide operations by shedding non-core assets to boost profitability.

HSBC currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We expected the stake sale to encourage analysts to revise their earnings estimates upward, which in turn would help HSBC achieve a better Zacks Rank.

Just Released: 5 Stocks Set to Double

Today, you are invited to download a free Special Report from Zacks Investment Research. It reveals five moves that could gain +100% and more in the next 12 months:

One white-hot electronics company is launching a wave of 9 new products. Another is targeted for acquisition after averaging earnings surprises of +41.11% during the last four quarters. Still another is on the brink of three breakthroughs with new diagnostic approaches and therapies.

Top Zacks Features

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

Zacks Research is Reported On:

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1986 it has nearly tripled the S&P 500 with an average gain of +26% per year. These returns cover a period from 1986-2011 and were examined and attested by Baker Tilly, an independent accounting firm.

Visit performance for information about the performance numbers displayed above.